USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
3.4 Taxes or Fees Relating to the Granting and Enforcement of Security The recording of a mortgage usually requires the payment of mortgage fees and taxes, which vary from state to state. For example, in New York City, the mortgage recording tax requires purchasers to pay 1.8% on mortgage amounts under USD500,000 and 1.925% on mortgage amounts exceeding USD500,000. 3.5 Legal Requirements Before an Entity Can Give Valid Security In order for a security interest to attach to collat - eral, the debtor entity must enter into a security agreement with the lender and provide proof that it has clear title to the collateral. The mortgage or deed of trust must then be publicly registered where the land is located in order for the lender to establish the security interest in the real prop - erty. 3.6 Formalities When a Borrower Is in Default When a borrower is in default of a loan secured by a mortgage on commercial property, the lend - er may pursue “foreclosure” of the mortgage. The foreclosure process varies from state to state. In New York, for example, all foreclosures are judicial foreclosures (requiring a lawsuit to be commenced). In many states, liens follow the “first in time, first in right” rule, meaning that whichever lien is recorded first will have priority when the funds from a foreclosure are paid. However, there are exceptions. For example, judgment liens typi - cally have a lower priority than mortgage liens. Also, state law may prioritise certain types of liens, such as tax liens. Parties may also agree that certain liens may be or become “subordi - nate” to certain other liens (see 3.7 Subordinat- ing Existing Debt to Newly Created Debt ).
Foreclosure actions may take about 15 months to be concluded. During the COVID-19 pandemic, the federal government (under the CARES Act) and various states placed a moratorium on evictions and foreclosure actions. However, the federal mora - torium expired on 31 July 2021, and state-level moratoriums also ended. There is an active market in the USA for non- performing notes (NPNs), although the size of the market varies and is spread among institu - tional buyers, hedge funds, private equity firms and institutional investors. NPNs are typically acquired at steep discounts, to be renegotiated, foreclosed upon or resold. 3.7 Subordinating Existing Debt to Newly Created Debt When a new creditor wants to become the senior lender, the existing lender must consent to “sub - ordinate” its superior claim, which is achieved through a subordination agreement defining the creditors’ priority. While subordination may seem disadvantageous, it can be advantageous, such as when a lender agrees to subordinate its mortgage to a construction loan to improve the property’s marketability. These arrangements are frequently negotiated and agreed upon in advance. Some buyers consolidate and extend existing and new debt ( “consolidation and exten - sion” ) over the property. 3.8 Lenders’ Liability Under Environmental Laws Generally, a lender cannot be so liable, provided that it does not participate in the management of the property or participate in, create or make the environmental issue worse, and that it obtains an exemption under CERCLA.
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